11 States Now Restrict Employer Use of Credit Reports – Growing Trend?

New York joins 10 other states when it significantly tightened restrictions on the use of consumer credit reports in employment decisions. Effective this month, recent amendments to the New York Fair Credit Reporting Act impose broad prohibitions, provide only narrow exceptions, and increase compliance risk for companies that have historically relied on credit checks.

A Broad Prohibition with Limited Exceptions

The amended law largely prohibits employers from requesting or using consumer credit reports for hiring, promotion, reassignment, or retention decisions. This reflects a policy view that credit history is not a reliable measure of job performance.

Limited exceptions remain, including roles that require bonding, involve access to highly sensitive information, include significant financial authority, or are subject to specific legal background check requirements. However, these exceptions are now interpreted much more narrowly and must be applied on a role-specific basis.

Impact on Mortgage and Financial Services Employers

For mortgage companies, the changes create tension with existing compliance practices. Employers must carefully assess whether a credit check is truly required by law or whether a position meets the heightened threshold for an exception.

Broad or automatic use of credit checks across job categories likely is not defensible. Each role should be evaluated individually, with clear documentation supporting any reliance on an exception.

Because mortgage loan originators must hold licenses or registrations governed by state and federal law, and those requirements include credit and background checks, companies have good arguments that they fit within the exception in many cases.  But what about others?  And how does the new law apply to promotions and the like?  And what about other roles?  These promise to be evolving areas.

Increased Risk and Enforcement Exposure

The updated law raises the stakes for non-compliance. Improper use of credit reports can lead to claims under New York law.

Given the prohibition, enforcement activity and litigation risk are likely to increase.

Practical Next Steps

Employers should act promptly to:

• Review and revise hiring and background check policies

• Eliminate credit checks where no clear exception applies

• Train HR and compliance teams on the new standards

• Coordinate with vendors to ensure compliance

New York’s approach also reflects a broader national trend limiting the use of credit data in employment. Employers that adjust now will be better positioned to reduce risk and maintain compliant hiring practices.

For more information, contact troy@garrishorn.com.